4 Tax Benefits of a 1031 Real Estate Exchange

There are significant tax benefits when you take advantage of a like kind exchange using a 1031 tax­ deferred real...

4 Tax Benefits of a 1031 Real Estate Exchange

There are significant tax benefits when you take advantage of a 1031 tax­deferred real estate exchange. Through a 1031 exchange, real estate owners can defer capital gain taxes when they sell a business or investment property and use the proceeds of the sale to purchase another property ‘similar’ to the first. A well thought out 1031 tax exchange strategy can be a huge contributor to your overall financial success. Here are four of the tax benefits you can realize.

  1. Equity Preservation – Capital gain taxes can be quite large, especially if you purchased the property for much less than it is worth now. By deferring the payment of those taxes to a later date, you have more equity in your portfolio to use today.
  2. Leverage and Purchasing Power – When you defer paying your capital gains tax you are essentially receiving a long­term, interest­free loan from the IRS. You can use the money preserved through the tax-free exchange 1031 to acquire a new property or properties that will give you significantly higher returns.
  3. Diversification/Change With Real Estate Changes – Real estate trends change over time and the asset types you want to invest in will change as well. A 1031 tax exchange allows you to trade in a poor performing asset for a more profitable one without any loss in equity. You will have the power to follow real estate trends and maximize your returns.
  4. Wealth and Estate Building – A well thought out 1031 exchange program where you continually take advantage of a tax-free exchange 1031 to develop your portfolio will significantly grow your wealth and leave a larger estate for your family when you die. And, as estate taxes are based on a step­up in the cost basis to current market value, the tax burden of capital gains is essentially wiped away. Your heirs will appreciate the benefits of your planning.

Regardless of the economy, real estate continues to be one of the wisest investment choices available. The tax benefits you can realize through a 1031 tax exchange are great, and can really help you increase the value of your real estate holdings. Start planning your future success today.